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Italian government shakes up stability pack

The new Italian government wants to reverse the pension reforms of the former government, introduce a minimum wage and unconditional basic income, as well as simplify the tax system.

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06/2018

After several long weeks of zigzagging, the Five Star Movement and the Lega Party (formerly ‘Lega Nord’, whose aim is to separate Northern Italy from the rest of the country) have managed to form a new government, on a second attempt. Previously, President Sergio Mattarella had made use of his right to refuse the cabinet proposed by Prime Minister-designate Carlo Cottarelli, who subsequently did not take up office.

Instead, Guiseppe Conte became Italian Prime Minister on 1 June 2018. Conte is a professor of private law at the University of Florence and LUISS in Rome. He has a law firm in Rome and is a lawyer at the Corte Suprema di Cassazione, the highest court of appeal in Italy.

In the Conte government, both party leaders hold key positions. Luigi Di Maio from the Five Stars Movement is Minister of Economic Development, Labour and Social Policies. Matteo Salvini from the Lega takes on the role of Minister of the Interior. Both will jointly hold the position of Deputy Prime Minister. Di Maio’s aspirations go deep into Italy’s vastly depressed and underfunded social sector. Items on his agenda include cancelling the pension reforms of the previous government, introducing a minimum wage and, as promised during the election campaign, establishing an unconditional basic income of EUR 780 per month.

The new Minister of Economy and Finances is Giovanni Tria. As repeatedly reported by the media, he is an adherent of deficit-financed fiscal policy. He wants well-coordinated and strong fiscal and monetary policies at European level, in other words to boost the economy through a massive injection of investment funds being made available. According to the Welt newspaper, he has even asked the ECB to consider whether it would not make sense to waive the bought-up debt of all debtor countries.

According to Tria’s thinking, one could start by issuing bonds to finance special structural investments; the final maturity of these bonds would probably be put off forever and a day. In financial terms, this means for him breaking through the taboo of debt monetisation and finally leaving the classic austerity course à la Schäuble by increasing the money supply.

The idea that over-indebted states should be given more freedom to act, which they no longer have fiscally, by increasing their room to move beyond all austerity agreements is not anything new and can also be found in another form with different twists in Macron's ideas for a ‘powerful’ eurozone. The legal basis of the euro is hardly to have foreign debt financing to compensate for fundamental economic policy mistakes. If future investments were ‘repayment-free’, this would probably also apply to social security charges.